internal revenue service

A look into money laundering

In U.S. law, money laundering is the process of engaging in financial transactions to conceal the identity, source, and/or destination of illegally gained money. It is believed that the term “money laundering” originated from the Mafia’s ownership of Laundromats whereby large sums of money were made through illegitimate activities that showed origination from a legitimate-appearing business.

The U.S. Criminal Code contains more than 100 predicate offenses to the crime of money laundering, which include drug trafficking, smuggling, prostitution rings, illegal arms sales, embezzlement, insider trading, bribery, and computer fraud. The Internal Revenue Service (IRS) considers money laundering a “tax evasion in progress.” And when no other crimes could be pinned to Al Capone, the IRS obtained a conviction for tax evasion. Leaving the courthouse, Capone said, “This is preposterous. You can’t tax illegal income!” Had the money laundering statutes been in effect in the 1930s, Capone also would have been charged with this crime. However, since October 1986, with the passage of the Money Laundering Control Act, organized crime members and many others have been convicted of both tax evasion and money laundering.

One of the most notable money laundering cases was settled in March of this year. Wachovia Bank, which is owned by Wells Fargo & Co., reached a $160 million settlement with the Justice Department over allegations that a failure in bank controls enabled drug traffickers to launder drug money by transferring $420 billion from Mexican currency-exchange houses to the bank. Under a deferred-prosecution agreement, Wachovia “admitted failure to identify, detect, and report suspicious transactions in third-party payment processor accounts.”

And money laundering has even reached the Vatican. Media reports from the past week say that the Vatican Bank, along with its chairman Ettore Gotti Tedeschi and director general, Paolo Cipriani, have been targeted for alleged violations of money laundering laws. Italian authorities temporarily froze 23 million euros ($30 million) from an account registered to the Institute for Works of Religion (IOR) a.k.a. the Vatican Bank. The investigation was opened after the Bank of Italy, adhering to anti-money-laundering directives issued by the European Union, alerted officials to two suspicious transfers on September 6, 2010. The Holy See expressed surprise at the allegations.

September 28th, 2010|Criminal Activity, Educational Series|

Consider the source…of the funds

A holding company’s claim that it “had the funds and network to take the action necessary to complete business deals” was put to the test in an SI background investigation. Searches of civil records located a lawsuit filed in 2008 in which the holding company sued the United States of America, the Drug Enforcement Agency, and Internal Revenue Service for return of approximately $24.5 million seized from bank accounts in Florida. The government’s response to the holding company’s claim disclosed that there was an ongoing criminal investigation in Arizona involving drug trafficking and related international money laundering enterprises. The seizure of the funds resulted from evidence gathered during the investigation.

    In addition to the foregoing, the government stated that it was still investigating whether there were any victims of fraud because the investigation made it apparent that many of the entities associated with the seized accounts had no legitimate business activity, are shell companies, and have failed to comply with reporting requirements in Florida regarding their purported operational activities. The government specifically noted that the holding company’s Web site appears to promote an investment scheme with unrealistically large interest returns which typically is consistent with a fraudulent investment operation and, in fact, agents have received statements from individuals reporting that they have invested in a program that promised incredibly high rates of return. The government’s investigation led it to conclude that the holding company failed to establish it is an entity of substance and not composed of a series of shell companies simply moving money around in a money laundering exercise to conceal the ownership, source, and control over the funds.

    August 15th, 2009|Fraud|

    One of the largest employment tax-fraud cases in IRS history

    Our investigation, which included manual civil and criminal record searches and searches of media sources, revealed that the subject company and four of its subsidiaries are under federal indictment for conspiracy and wire fraud as part of a multimillion dollar tax fraud scheme orchestrated by the companies’ founder. This individual recently was sentenced to over 20 years in prison and ordered to pay restitution of $180 million to the Internal Revenue Service after pleading guilty to five felonies including failure to collect and pay payroll taxes and obstructing a federal investigation. It is reportedly one of the largest employment tax-fraud cases in IRS history. Before the sentencing, the individual attempted to justify his actions by claiming insanity.

    The subject company and its subsidiaries also were defendants in dozens of lawsuits for fraud and breach of contract with damage claims totaling over $220 million, in addition to filing for Chapter 11 bankruptcy. Several motions had been filed to dismiss the bankruptcy proceedings, one of which was made by the company’s former accountants who were sued for professional negligence. In court papers, the accountants asked that the case be dismissed or converted to a Chapter 7 because “the only reason the debtor filed the petition was in an effort to help (the founder’s) criminal case.” The motion to dismiss also argued that the company has no chance to successfully reorganize because it is a “sham company used only for illegal activities,” has no remaining employees and no income.

    July 14th, 2009|Bankruptcy, Fraud, Taxes|
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